And let's turn back to the major indexes again,
ending at their session lows the NASDAQ shedding 2.5% after
rising for three straight days
with investors buying the dip in the pullback that we saw earlier this week
joining me now is Melissa Brown,
managing director of applied research at Contigo Melissa,
Thank you so much for coming on the show.
What do you make of today's market action?
Well, I mean,
it's not that surprising we've seen um
negative sentiment across actually across all markets,
not just the US market, um, and that's been going on for a while now.
And typically when sentiment is negative,
it means that the reaction to bad news is larger than you would expect.
And there's not as much Um positive reaction to good news,
is there a broad signal melissa that investors should
take away from these first two trading weeks of 2022
as to what the rest of this year might portend when it comes to the stock market?
Well, you know, it,
I think it's going to be a choppy year were coming off of three very good years in,
in mark in the market, um, in, you know, in most markets.
And um, you know, it's hard, it's hard to follow that up,
especially when you see such, you know,
big inflation numbers as we've seen for the past several months.
And when you see um,
evaluations
being at high levels, you know, it's hard to,
it's much easier to react badly to bad news.
Now, where do you see opportunity in this market,
there was some expectation that industrials bank stocks,
Energy names would continue to do well this year
perhaps that some of these technology
names do underperform because their valuations
do look a bit rich as interest rates are set to rise.
Well, actually, I think valuations for the whole market look pretty rich.
It's um you know, it's pretty much across the board obviously, you know,
with some differentiation, but it might be,
and particularly if rates continue to go up that actually bonds are the place to be
interesting bonds uh which bonds in particular, are there E. T. F. S funds?
Uh Any opportunities melissa that you see in this market when it comes to bonds?
Well, you know,
I think probably high yield um where you will get some return um
government bonds right now or are a little bit of a tough call.
But if if rates do go up, uh you know,
we might see government bonds actually offer an attractive alternative
to to equities.
Um you know,
in a few months,
would you be selling text tax if you owned tech stocks in your portfolio, Melissa.
I'm sure you would advocate for a diversified portfolio. But names like Microsoft
down today. Tesla under pressure as well. Virgin galactic.
My gosh down 20% of course, these are all apples to apples comparisons,
it looks like Microsoft might have eked out a little bit of a game there.
I'm not so sure this is an actually accurate chart that we're showing,
but big technology really selling off,
would you be selling it off in a portfolio melissa?
Well, you know, I think it depends on what the portfolio looks like and you know,
if you want to maintain a portfolio that's well diversified,
um and you're overweight those stocks, yes,
then maybe you want to sell them down to market weights,
but um to be well diversified to not um take too big a bet against the market,
you don't want to sell them off completely because
then you're taking on a lot of extra risk,
a lot of potential extra volatility as compared with the market.
Is there a catalyst between now and the end of the
month that could move this stock market one way or the other
bank earnings on top tomorrow. I know that could be a big one,
but we are going to hear from the Fed until the end of the month.
How do you play that melissa?
Well, you know, I think between now and then we have the earnings season and so yes,
you know, banks are, are tomorrow,
but I think more broadly when we see what companies,
how they're reacting to higher inflation,
whether it's starting to hurt their profit margins.
Um I think so, you know, I don't, I don't know what it's going to be,
which if it's going to be one company, but I think
um I think that's going to be a signal about the impact of inflation on, you know,
if it starts, if it looks like it's hurting earnings um that could be a catalyst.
Okay, so earnings kicking off in earnest tomorrow with those big banks, Jpmorgan,
Citigroup, Wells, Fargo all set to report.
Of course they would do well in a rising rate environment.
But as we start to hear from more companies, Melissa,
what are you going to be focusing on
to gauge the health of the economy and the path forward for the market?
Well, um you know, again,
I think profit margins are going to be particularly important um in this
inflationary environment and it's not going to be just what they report,
it's going to be, you know, what, what their future guidance is, are they?
You know, our company is very concerned about, you know,
what's going to happen in the next,
next quarter, the quarter after that.
Um So I think that's a, that's a key thing to be watching um and you know,
then just stepping back, looking from a portfolio perspective, you know,
you want to be careful on the volatility of volatility of stocks is going to go up
um that, you know,
you want to maintain a portfolio where perhaps your volatility
is a little bit lower than that of the market.
So with the market richly valued,
as you mentioned melissa for most stocks out there,
what kind of pull back do you expect choppy trade?
I we've all seen that. But do you expect that we can see a pullback of 10,
20% this year.
I mean, it certainly wouldn't be out of the realm of possibility if, you know,
if you've got high valuations, relatively high volatility,
if we get some particularly bad news, you know,
right now could be on the earnings front,
but there are certainly other things out there um you know,
whatever fourth or fifth wave of Covid, for example, you know, things like that,
you know, that could portend a pretty big pullback.
Okay, 10%..
Of course we've seen with the omicron variant that
has added some volatility to this market as well.
How much is the coronavirus to focus for you now
in 2020 to the emergence of any new potential variants?
Well, I mean, you know, that is certainly something that um you know,
investors are worried about.
But what's been interesting over the past,
probably month or so is the stocks that we call the pandemic profiteers,
Those kinds of names that seem to actually benefit from the pandemic.
They've been flat, they've done nothing.
And so it looks like the market may have moved on,
at least for now for worrying about the impact of,
of covid um and onto other maybe bigger things like inflation.
Alright, melissa Brown,
managing Director of Applied Research at Contigo Melissa,
we appreciate you coming on the show.
And what was a market meltdown? Certainly for the NASDAQ today. Thank you.